Former partners of Kentfield investment manager demanding their money; manager says he was the victim of bank giant

Aaron Braun, a high-rolling Kentfield investment fund manager, is being hounded by several former business partners who claim he lost large amounts of their money in risky investments and then has failed to return the balance of the money that remained.

Braun is struggling to deal with eight court judgments and a federal tax lien against his property that total more than $12 million.

Braun maintains the partners are merely being impatient and will be paid in full in due time; he says he was a victim of UBS AG, the Swiss global financial services company, which served as his broker. UBS denies this.

Braun said he founded his investment partnership, Willow Creek Capital Partners, in 1995 with $1.8 million supplied by family and friends and grew it into a powerhouse hedge fund, specializing in short-selling.

"I managed close to $1.3 billion at one point, for some of the largest investors in the world, some of the best known investors as well," Braun said.

One of the suits against Braun is highly critical of his investment strategy and accuses him of pulling most of his money out of the partnership before it suffered its biggest losses. Braun denies this.

Braun said the investors who are seeking payment were investors in his Willow Creek Capital Partners, a limited investment partnership that he oversaw. Braun said there are a total of 49 investors to whom he owes money, and they all will be paid in full when he liquidates the fund.

"Everyone is going to be paid back at the same time, which is what I've been telling people for two years," Braun said. The partnership ceased operations on Dec. 21, 2011.

Braun said he isn't sure how much longer the process will take.

"There are some investments that have been liquidated, some that need to be liquidated. It's an ongoing process," he said.

Among those seeking to collect from Braun is St. Olaf College in Northfield, Minnesota, a private college affiliated with the Evangelical Lutheran Church in America. St. Olaf has a $2.99 million lien against Braun's property. Benjamin White, an attorney for the college, declined to comment on the school's investment in the partnership or its efforts to recover its judgment against Braun.

Marin County Superior Court Judge Lynn Duryee issed an order for Braun's arrest in July after Braun missed two court dates to furnish information to aid in the collection of a $20,000 judgment owed to Michael Delman and Allison Delman of Kentfield. The Delmans invested more than $200,000 in Braun's Willow Creek Capital Partners.

Braun said he explained to the court that he missed the most recent court date stemming from the Delman suit because he couldn't find the right court room in time. Marin County Sheriff Robert Doyle said there is currently no active warrant for Braun's arrest.

Arrest orders were previously requested by other plaintiffs seeking to recover judgments from Braun, after he failed to comply with numerous court-ordered appearances. Both Braun and his wife, Joan DeHovitz, have been ordered to appear in Marin County Superior Court on Oct. 16 for examination in connection with a case that resulted in a $750,000 judgment against Braun. The plaintiff in that suit, Scott Delman of Manhasset, New York, says he has been unable to collect any of the money owed to him — even though Judge Duryee ordered a default judgment against Braun on March 29, 2012.

All of the judgments against Braun were issued by default; Braun said he has mounted no legal defense.

In his suit, Scott Delman — no relation to the Delmans in Kentfield — states that he invested $250,000 in Braun's limited partnership, Willow Creek Capital Partners, in August, 2008.

According to Scott Delman's suit, "Braun was borrowing huge sums from UBS to engage in increasingly risky short selling strategies, while leaving investors with little or no information about what was happening."

In addition to purchasing stocks and holding them on the assumption they would appreciate in value, Braun also engaged in short-selling. In such a transaction, a short seller borrows and then sells a stock in the hope that the price will thereafter drop, thereby allowing the borrower to purchase a replacement security at a lower price while pocketing the difference. UBS Securities, a subsidiary of UBS AG, was serving as Braun's prime broker loaning him securities so he could short stocks.

Braun denies being reckless. "I gave people as much information as I could possibly could as soon as I could," he said.

The suit asserts that Braun ran into trouble in November 2008 after he accepted $30 million in non-cash assets from an undisclosed investor. The suit states, "These securities were of subjective and indefinite value, and their receipt materially changed the risk profile of the investment fund."

Braun said, "That's an opinion. There is no factual basis for that whatsoever."

The suit states that soon after that UBS informed Braun that he needed to post more collateral. It asserts that "the inability of Braun to find a prime broker willing to extend sufficient credit put the partnership into a free fall from which it could not recover."

The suit also states that as the partnership's losses mounted Braun kept investors in the dark and encouraged them to send more money; meanwhile, according to the suit, the partnership's general partner, WC Capital Management, which Braun owns and manages, "had withdrawn millions of dollars in funds from the partnership by the end of 2008 and had little or nothing in the partnership as of Jan. 1, 2009."

Braun said, "That is completely inaccurate. That did not happen."

Scott Delman received a judgment of $750,000 against Braun, even though he invested just $250,000 in the partnership. That is because in an effort to prevent Delman from filing his suit in November 2011, Braun agreed to pay Delman $263,000 by Dec. 19, 2011 — otherwise he promised to pay $750,000 as a remedy.

Braun said, "That was just a penalty clause. It was a mistake on my part."

Braun says he is waiting to pay all of his Willow Creek partners at once; but it appears that he has already paid at least one of these investors, who has also filed suit against him.

In this lawsuit, Gerald Wendel of Las Vegas, 71, said he lost all but $268,416 of the $1 million he invested in the Willow Creek partnership. Braun returned most of the remaining money to Wendel in February 2010; but Wendel sued when Braun held on to $26,841.

Wendel was awarded a default judgment of $36,215 in December 2011. His attorney, Lyman Bedford then began to pressure Braun for payment. Bedford secured a court order to appraise jewelry belonging to both Braun and his wife. The Braun's, however, never complied with the order.

Bedford supplied a copy of an e-mail that Braun sent on June, 25, 2012 confirming that he had wired Wendel $26,841.

Asked about the payment, Braun said, "They held my feet to the fire."

Bedford said he is still trying to collect attorney fees and interest from Braun.

One of the judgments against Braun, totaling $1.4 million, involves another allied fund that Braun managed: Willow Creek Short Biased 30/130. Court records show that Cadogan Management, a private investment management firm specializing in funds of hedge funds, received a payment of about $767,000 in April 2012 and is still owed more than $637,000.

In the suit Cadogan, stated that it withdrew 90 percent of its money from the fund in 2009 and that Braun "misappropriated the remaining balance and used these funds to continue trading" for his own benefit.

Braun said that fund, formed in 2007, was dissolved in 2010. He said, "If there is a residual amount left to be paid to get that situation cleaned up, it will be resolved once I get the Willow Creek Partners paid off."

In April 2010, Braun sued UBS Securities. In his suit, Braun alleged that UBS Securities caused Willow Creek Capital Partners and Willow Creek Short Biased 30/130 Fund, to lose more than $25 million. Braun said these devastating losses made it impossible for him to pay capital gains taxes owed from 2008 and as a result the Internal Revenue Service has a $7 million lien against his property.

Braun's suit, filed in the United States District Court for the Southern District of New York, states that UBS materially and repeatedly breached agreements with the Willow Creek partnerships "by failing to disclose its internal margin rules and then by later arbitrarily and capriciously imposing such rules.

"UBS's application of its undisclosed margin rules on the partnerships was not driven by any risk that the partnerships' accounts posed to UBS," the suit states, "but rather by UBS's own financial problems and the billions of dollars in losses UBS experienced as a result of its own imprudent decisions in financing and investing in mortgage-backed securities."

Braun said UBS boosted his collateral requirements, "Because their balance sheet was imploding; because they bought $50 billion of crap from Goldman Sachs. That's not our problem."

Traders such as Braun are required to maintain minimum margin or equity in their accounts. If the value of the securities and funds in the trader's account falls below the margin requirements when they are recalculated at the end of the business day, the broker may issue a margin call. This is a notification to the trader that he must post additional collateral, or take other action such as selling positions, in order to increase the margin or equity in his account.

UBS has denied Braun's allegations, and in December 2010, U.S. District Judge Alvin Hellerstein ruled in favor of UBS rejecting against Braun's assertion that UBS failed to disclose in advance the rules and conditions governing its margin calls. Braun is in the process of appealing the decision.